Below are the minutes released by the Federal Open Market Committee after its Dec. 15-16 meeting:

The Manager of the System Open Market Account reported on recent developments in foreign exchange markets. There were no open market operations in foreign currencies for the System's account in the period since the previous meeting. The Manager also reported on developments in domestic financial markets and on System open market operations in government securities and federal agency obligations during the period since the previous meeting. By unanimous vote, the Committee ratified these transactions.

The Federal Reserve headquarters in Washington, DC.

The information reviewed at the December meeting pointed to a significant contraction in economic activity in the fourth quarter. Conditions in the labor market deteriorated considerably in recent months as most major industry groups shed jobs. Private payrolls continued to fall at a faster pace than earlier in the year, and the unemployment rate rose to 6.7 percent. Industrial production, excluding special hurricane- and strike-related effects, fell further in November, and consumer spending declined across a broad range of spending categories over recent months. The housing market weakened again as construction activity, new home sales, and home prices declined further. In the business sector, investment in equipment and software appeared to continue to contract. Financial markets saw a further pullback in risk-taking, spurred in part by the more pessimistic outlook for economic activity; this situation led to lower equity prices, higher risk spreads, and tighter constraints in credit markets, all of which intensified the decline in real activity. On the inflation front, headline consumer prices declined in recent months, as energy prices continued to fall and consumer food price increases moderated.

The labor market continued to worsen. According to the November employment report, payroll employment fell at a rapid pace over the preceding three months, with substantial losses across a wide range of industry groups, including manufacturing, construction, retail, financial activities, and business services. Indicators of hiring plans also dropped steeply in November, and other labor market indicators suggested that jobs remained in short supply. The unemployment rate climbed to 6.7 percent in November, while the labor force participation rate fell after remaining steady for much of the year. New claims for unemployment insurance rose sharply through early December.

Industrial production, excluding special hurricane- and strike-related effects, fell markedly in November after sizable declines in the preceding two months. The recent contraction in industrial output was broadly based. The steep pace of decline in the production of consumer goods reflected not only cutbacks in motor vehicle assemblies but also drops in the output of other goods, such as appliances, furniture, and products related to home improvement. The production of business equipment was held down by declines in the output of both industrial and high-tech equipment. The output of construction supplies extended its decline after a brief pause in the middle of the year, and the contraction in the production of materials intensified. In particular, steel production plummeted, and the output of organic chemicals contracted noticeably. For most major industry groups, factory utilization rates declined relative to their levels in July and remained below their long-run averages. Available forward-looking indicators pointed to a significant downturn in manufacturing output in coming months.

Real personal consumption expenditures (PCE) fell for the fifth straight month in October, with the slowdown evident in nearly all broad spending categories. Sales of light motor vehicles, which slumped in October, fell further in November, but the available information on retail sales suggested a small increase in real outlays for other consumer goods. The annualized three-month change in spending on services in October was just one-third of the rate registered in the first half of 2008. Preliminary data for October and November suggested that overall fourth-quarter real spending would receive a modest boost from recent price declines for gasoline. Real incomes were also boosted by the reversal in energy prices, though the negative wealth effects of continued declines in equity and house prices likely offset this somewhat. Measures of consumer sentiment released in November and December remained low, and available evidence suggested further tightening in consumer credit conditions in recent months.

Real construction activity continued to decline in November. Single-family housing starts and permit issuance fell further. In the multifamily sector, starts dropped sharply in November while permit issuance remained on a downtrend. Housing demand remained weak, and although the number of unsold new single-family homes continued to move lower, inventories remained elevated relative to the current pace of sales. Sales of existing single-family homes changed little, although a drop in pending home sales in October pointed to further declines in the near term. The comparative strength of existing home sales appeared to be attributable partly to increases in foreclosure-related and other distressed sales. Financing conditions for prime borrowers appeared to ease slightly after the Federal Reserve's announcement that it would purchase agency debt and agency mortgage-backed securities (MBS) to support mortgage financing, while the market for nonconforming loans remained impaired. Several indexes indicated that house prices continued to decline substantially.

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